Steve Wolosky Quoted in The Deal on Flashlight Capital’s Campaign at KT&G Corp


Partner and Co-Chair of Olshan’s Shareholder Activism Practice Steve Wolosky was recently quoted in The Deal (subscription required) in an article comparing and contrasting Flashlight Capital Partners Pte. Ltd.’s recent activist campaign launched at South Korean tobacco and ginseng company KT&G Corp. and the 2006 campaign launched by Warren Lichtenstein and Carl Icahn at the same company which sought to elect Lichtenstein to the company’s board, the first time a foreign activist investor was successfully installed on a South Korean Company’s board. Led by Sanghyun Lee, Flashlight’s strategy is similar to that of Lichtenstein and Icahn 16 years ago: to urge the company to spin off its ginseng business and sell its real estate development operations. Comparing the campaigns, Steve said, “I would expect potentially more sympathy for Sanghyun because he is a homegrown Korean, while Icahn and Warren were foreigners. He has lived and breathed the Korean market and is working within the norms of Korea, rather than an outsider coming in.” As with the Lichtenstein-Icahn campaign, Flashlight also wants KT&G to focus on its core tobacco business. “Did KT&G adopt the thesis Icahn and Lichtenstein recommended? No,” Steve said. “Did they accept the offer from Carl? No. We continue to be in a world where many Korean companies, like KT&G, have significant noncore assets. Can they be monetized? Yes. Should they be monetized? In the view of Flashlight, that is the case.” KT&G’s investor base is also similar to its 2006 base, and Steve noted that the success of early activism in Japan or South Korea, including the Lichtenstein-Icahn contest, was due to activists targeting companies with many foreign investors: “KT&G had a large non-Korean shareholder base, and it still does.” Indeed, in 2006 as now, about 50% of KT&G’s shares were owned by foreign investors, making the company potentially attractive for activists in a country wherein many companies have controlling shareholders, including family owners. Steve also noted Lee’s private equity approach in analyzing campaigns, saying, “One would expect Sanghyun to bring a private market point of view and seek to identify if the sum of the parts is greater than the whole. That investing approach would identify KT&G as a company with a lot of hidden value. The issues existing in 2006 are similar issues to those that exist now.” However, Flashlight’s campaign, Steve observed, involves investor focus on ESG issues which were not as prevalent in 2006. “There are obviously differences in the world when compared to 2006, and for KT&G, ESG is a perfect example,” he said. “The market is really moving away from traditional cigarettes to heat not burn products.” Steve concluded that although the Lichtenstein-Icahn campaign did not succeed in driving KT&G’s real estate and ginseng divestitures, the pair profited from their investment: “They had a good return on their investment. KT&G was undervalued then, and it did increase in value as a result of Warren and Carl’s actions. But I think right now if you look at market cap of the company today and compare it to in 2006, you will see that there has not been any long-term creation of shareholder wealth.” Lastly, Steve opined that, despite the campaigns’ similarities, Lee likely did not launch Flashlight’s campaign because of Lichtenstein’s and Icahn’s 2006 campaign.

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